CMBS Delinquency Rate Makes Biggest 2012 Drop

The delinquency rate on U.S. commercial real estate loans saw its biggest drop in more than a year in October, according to ""Trepp, LLC"":https://www.trepp.com/.

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The analytics provider released its October 2012 U.S. CMBS (commercial mortgage-backed securities) Delinquency Report, revealing that the delinquency rate for commercial real estate loans in CMBS fell 30 basis points to 9.69 percent. The drop was the biggest one recorded in 14 months and marks the third straight month in which overall delinquency has improved.

The CMBS delinquency rate was 9.77 percent in October 2011. The percentage includes loans that are at least 30 days delinquent or in foreclosure.

More than $1.5 billion in loans were resolved with losses in October. The removal of these loans from the delinquent category helped drive the delinquency rate down to the tune of 28 basis points, Trepp estimated.

Those resolutions helped mitigate the $2.6 billion of newly delinquent loans. While that figure put upward pressure on the delinquency rate, it still fell well below September's newly delinquent volume of $3.3 billion.

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In addition, the number of loans cured in October brought down the delinquency rate 45 basis points, effectively countering all upward pressure from new delinquencies.

Any remaining downward influence on the delinquency rate came from the repayment of performing loans, loans becoming defeased, the amortization of existing loans, and the addition of new deals to the pool, according to the report.

Delinquency fell in four out of five categories, including: industrial (11.5 percent), lodging (11.2 percent), office (10.2 percent), and retail (8.0 percent). The only increase was in the multifamily sector, where the delinquency rate rose to 14.3 percent.

The drastic drop-off in the overall delinquency rate comes as something of a surprise given the current economic and political climate, says Manus Clancy, senior managing director of Trepp.

""The CMBS market had every excuse to sell off in October--a devastating hurricane, uncertainty over the upcoming U.S. election, and lack of progress in addressing the fiscal cliff,"" Clancy said. ""Despite this, the CMBS market enjoyed another terrific month. Spreads dropped once again, making refinancing possible for previously marginal performing properties while the delinquency rate continued to march lower. Overall, there was a lot to cheer about for CMBS investors.""

What's more, Trepp has reason to believe the improvement will keep moving along.

""The firm sees no reason for the volume of loans being resolved each month to drop,"" Trepp said in a release. ""In addition, borrowing costs remain extremely low while the appetite for distressed real estate remains high. This should allow special servicers to operate at a high speed for the foreseeable future.""